S Korean demand for heavy naphtha pushes premiums to multi-year highs

Premiums for heavy full-range naphtha have risen to multi-year highs as South Korean petrochemical companies have turned to the product to replace a shortfall in the condensates that they typically use to run in their units, said five industry sources.

Hanwha Total Petrochemical has bought at least 250,000 tonnes of heavy full-range naphtha a month so far this year versus an average of 150,000 tonnes a month in 2017, said the sources who participate in the Asian naphtha market.

Meanwhile, SK Incheon Petrochem, a unit of SK Innovation , purchased 200,000 tonnes of the product for April delivery versus up to 125,000 tonnes a month previously, the sources said.

Heavy full-range naphtha has a higher content of compounds known as aromatics that are used as precursors for petrochemicals such as xylenes and paraxylenes.

The companies will likely keep purchasing more heavy full-range naphtha until June as a supply crunch in condensate, a type of light crude oil, has made it uneconomical for the buyers to switch back, the sources said.

“SK Incheon Petrochem’s heavy full-range naphtha imports have increased because (it) is now more economical than using condensate,” said a spokesman from SK Innovation but he did not elaborate on the volumes bought.

A spokesman for Hanwha Total declined to comment.

There has been less condensate available for Asian buyers as new splitters, or processing units that break down the condensate into different types of naphtha and some middle distillates, in South Korea, Singapore and the Middle East have started up.

However, the supply dent intensified when Iran cut its monthly shipments of South Pars condensate to South Korea by 3 million barrels, three sources that participate in the market told Reuters last month.

Premiums for condensate cargoes for April and May loading rose to as high as $5 a barrel over Dubai quotes.

For the April cargoes of heavy full-range naphtha, Hanwha Total and SK both paid premiums of $10.50 a tonne to Japan quotes on a cost-and-freight (C&F) basis. For cargoes for the second-half of May, SK paid a premium of $19 while Hanwha paid up to $16, which is the highest premium the company has paid for any naphtha grades since April 2014.

Due to the shortage of condensate in Asia, competing South Korean refiners S-Oil and Hyundai Oilbank, which also operate condensate splitters in South Korea, have recently bought condensate from Norway.

However, not all condensate splitters can process heavy full-range naphtha.